Philip Pilkington — The Capital Controversies Rise Once More

Phil explains how the issues raised in the Cambridge capital controversy are relevant today in light of the debate around inequality.

The capital debates were, it should be said, about rather a lot of things. But the most immediate concern was with income distribution. The mainstream marginalist argument tried to show that income is passed over to the factors of production — that is, capital and labour — in line with their marginal productivities. This implies that under free-market conditions the income received by each factor is in line with what it should be for maximum efficiency. There is an implicit notion here that income distribution is thus fair.

Of course, marginalists do not (always) take this argument literally. There are plenty of ways of protesting against the levels of income distribution from within this framework. The most obvious that comes to mind — and that which was put forward by a key player in the debates Robert Solow — is that income inequality can arise due to past levels of income inequality.

That is all well and good but the theory still gets away from an obvious truth: a key component of income distribution is due to the relative power of labour and capital. Anyone who denies this basic fact is either blind, politically motivated or… a marginalist economist....

Economists need to stop telling themselves these silly little stories and chasing chimeras. If they are interested in what accounts for investment, technical change and capital accumulation then they should go and study it. Not through their silly little models. But by examining the facts and studying companies as institutions. Do surveys. Look for empirical correlations. Engage in some corporate anthropology. Just stop building stupid models.

Fixing the Economists
The Capital Controversies Rise Once More
Philip Pilkington